by Jonathan A. Nelson
A power of attorney is an important and powerful tool – if an adult person (the Principal) can’t take care of everything for himself, or be in two places at the same time, he may wish to designate to another person (the Attorney-in-Fact) the authority to act on his behalf. In order to facilitate and encourage the acceptance of powers of attorney, Virginia law includes a number of statutory protections allowing third parties to rely on powers of attorney without having to verify that the power is not void or terminated or the agent is properly using his authority, and even requires the third party to pay attorney fees if they unjustifiably refuse to honor a power of attorney.
But who bears the risk of a power of attorney being fake? The Virginia Court of Appeals dealt recently with a forged power of attorney, in Robert K. Harwood, L.C. v. Chinchilla. As reported, Juan and Rossemary executed limited powers of attorney allowing their brother-in-law Carlos to manage particular investment properties in Virginia. Carlos took a genuine signature page, attached it to a new power of attorney granting him authority to mortgage the property, and took out a series of loans on the property and ran through the money. A lender initiated foreclosure and the homeowners filed suit to invalidate the loan and deed of trust.
The decision itself turned on a single word in the statute – the Uniform Power of Attorney Act protects third parties if they rely in good faith on a power purportedly verified by a notary, while Virginia’s version of the statute dropped the word ‘purportedly’ and expressly excluded the third party protections where the signature was ‘forged’. Finding that attaching the signature page to another document constituted forgery by Carlos, the Court ruled the signature on this document had not in fact been verified by a notary; accordingly, the lender bore the loss for having accepted the forged document rather than the homeowners for having had their signatures forged. Because this result is specific to Virginia’s statutory language, it is important to note that other states may come to the opposite result.
The practical result of this decision will no doubt be increased scrutiny of powers of attorney by Virginia financial institutions, title companies, and others asked to accept these documents.
As the push grows for AI and digital signatures, seeing the wet ink originals may prove more important than ever; as is consulting with attorneys well-versed in your state’s case law and who oversee the preparation and the signing of these documents, to ensure they can be verified.
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Virginia attorney Jonathan A. Nelson practices in estate planning, probate, trust administration, business formation, and estate and trust litigation, and brings nearly 20 years of experience resolving conflicts, negotiating settlements, vigorously advocating in the courtroom, and navigating compliance matters. He uses a personal touch and extensive legal knowledge to ensure that the particular needs and interests of each client are reflected in the legal services they receive.
The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.